GLASGOW, Scotland -- While traveling in Scotland last summer I found out about Ferguson Packaging using the time-honored way many customers still go about finding a pallet supplier -- in the Yellow Pages.

While the primary business purpose of my trip to Great Britain was to visit Scott Timber, I thought an interesting counterpoint would be to visit a local pallet company in the Glasgow area.

Ferguson Packaging was the first advertisement that caught my eye, and I got a positive feeling when I called by phone. Chris Donnelly, managing director at Ferguson Packaging, cordially invited me to visit his plant.

South of the River Clyde in the sizeable HillingtonPark industrial area, Ferguson Packaging operates in about a 13,000-square-foot cinderblock and steel building, with ample light provided through banks of skylights. The yard outside is paved for some lumber storage and loading and unloading the company’s two trucks.

A modest-sized company with annual sales of about $1 million or more, Chris categorized Ferguson’s production as about 40-50% recycled pallets with the rest split between new pallets and wood containers. He believes the Yellow Pages ad helps project the image of a larger company for the modest Glasgow pallet supplier. Ferguson Packaging also uses signs on one of its delivery trucks to promote itself.

Chris, an accountant by training, spent several years in the telecommunications industry. “I wanted to run my own business,” Chris said, explaining his interest in the pallet industry. He bought Ferguson Packaging about three years ago; the company was insolvent at the time. With no remaining employees, Chris built the first load of pallets himself. He began to hire workers as he accumulated orders. A few of the new hires had pallet industry experience, which helped Ferguson Packaging quickly get up to speed in production. Having done all the jobs himself the first few years, Chris has first-hand knowledge of how long it should take to build the pallets, load them and make a delivery.

The company’s best margins, not surprisingly, are in pallet recycling and container manufacturing. Sales of new pallets – mostly block pallets -- cover costs but add little profit. Things have been even tougher this year with rising costs for lumber and nails. For example, nail prices have increased 20%. Chris has had some success in increasing pallet prices to offset the higher costs.

Ferguson Packaging has about 10 employees and operates one shift Monday through Friday. Pallet assembly is labor intensive with power nailing tools and jigs. A Storti block cutting saw is used to produce blocks. Otherwise, for new pallets, the company buys cut stock in the lengths it requires. Chris buys domestic lumber, which he considers to be of better quality compared to lumber imported from the Baltics.

In its pallet recycling operations, Ferguson Packaging uses a Green Machine bandsaw dismantler to recover used deck boards. Used pallets in strongest demand are the 1200x1000 and 1200x800 block pallets in addition to a 1200x1200 block-style drum pallet.

Chris tries to avoid rental pallets. He does not buy rental pallet cores, and Ferguson Packaging does not provide services to remove surplus pallets at sites containing rental pallets. “If somebody phones for a yard clean-out of pallets, the first thing I ask them is what color are they,” he said.

Some small pallet recyclers sell their production to larger pallet suppliers, such as Scott Timber or Marlaw Pallet Services. However, Chris prefers to do his own marketing and sell direct to pallet-using businesses. “I want to maintain independence,” said Chris.

In the Scottish market, he believes there is a role for smaller companies like Ferguson Packaging. Large pallet suppliers do not want orders for 25 to pallets, he said. However, about 80%-90% of Scottish business is comprised of small and medium sized companies. For now, that is where Ferguson Packaging wants to position itself.

“The pallet business is totally traditional,” Chris observed. “It is very hard to innovate and be creative. We recycle pallets, and everybody is just looking for a price. Service is a factor to a point, but because it is just a use-it-once, throw-it-away commodity, just like a tea bag in the kitchen, people just always expect that there are always going to be a couple of hundred in the yard to use whenever they want.”

Chris is not considering automation at this time. Capital investment is hampered by the uncertainty of the business. Customers are reluctant to sign long-term contracts, he noted.

While businesses likely will contract for such services as telecommunications, Chris has not found the same to be true of pallets. “They tend to view pallets as a commodity and won’t lock in,” he said. “And you can never guess accurately what you are going to sell from one week to the next. It’s hard to get companies to commit. Even the large customers are reluctant to issue contracts.”

Large suppliers can undercut prices because they enjoy economies of scale, Chris noted. “What the customers have found out, however, is that they are a low priority customer to the big companies.”

“We’ve won some of the 50 and 100 pallet accounts back,” Chris said. “They may find that they have to pay a little bit more, but we provide much better value in terms of service. That’s how we differentiate a little bit.”

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